Freddie Mac 2011 Annual Report Download - page 277

timing of such deductibility. If favorably resolved, $1.2 billion of unrecognized tax benefits would have a positive impact
on the effective tax rate due to the reversal of the valuation allowance established against deferred tax assets created by
the uncertain tax positions. This favorable impact would be offset by a $201 million tax expense related to the
establishment of a valuation allowance against credits that have been carried forward. A valuation allowance has not been
recorded against this amount because a portion of the unrecognized tax benefits was used as a source of taxable income in
our realization assessment of our net deferred tax assets.
We continue to recognize interest and penalties, if any, in income tax expense. The net accrued interest receivable
was approximately $254 million at December 31, 2011, a $9 million change from December 31, 2010. Amounts included
in total accrued interest relate to: (a) unrecognized tax benefits; (b) pending claims with the IRS for open tax years;
(c) the tax benefit related to the settlement for tax years 1985 to 1997; and (d) the impact of payments made to the IRS in
prior years in anticipation of potential tax deficiencies. Included in the $254 million of net accrued interest receivable as
of December 31, 2011 and $245 million as of December 31, 2010, is interest payable of approximately $266 million and
$248 million, respectively, which is allocable to unrecognized tax benefits. We have accrued no amounts for penalties
during 2011, 2010, or 2009.
The period for assessment under the statute of limitations for federal income tax purposes is open on corporate
income tax returns filed for tax years 1998 to 2010. We received Statutory Notices from the IRS assessing $3.0 billion of
additional income taxes and penalties for the 1998 to 2007 tax years, principally related to questions of timing and
potential penalties regarding our tax accounting method for certain hedging transactions. We filed a petition with the
U.S. Tax Court on October 22, 2010 in response to the Statutory Notices for tax years 1998 to 2005. The IRS responded
to our petition with the U.S. Tax Court on December 21, 2010. On July 6, 2011, the U.S. Tax Court issued a Notice
Setting Case for Trial and a Standing Pretrial Order. The trial date set forth in the Notice was December 12, 2011. On
September 7, 2011, a joint motion for continuance was filed with the U.S. Tax Court. The joint motion was granted and
on October 11, 2011 the parties submitted a status report and the court set a revised trial date of November 5, 2012. We
paid the tax assessed in the Statutory Notice received in December 2011 for the years 2006 to 2007 of $36 million and
will seek a refund through the administrative process, which could include filing suit in Federal District Court.
We believe appropriate reserves have been provided for settlement on reasonable terms. However, changes could
occur in the gross balance of unrecognized tax benefits that could have a material impact on income tax expense in the
period the issue is resolved if the outcome reached is not in our favor and the assessment is in excess of the amount
currently reserved. In light of the revised trial date, the fact that no settlement discussions have occurred for an extended
period of time, and the information currently available, we do not believe it is reasonably possible that the issue will be
resolved within the next 12 months.
For a discussion of our significant accounting policies related to income taxes, please see “NOTE 1: SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES — Income Taxes.”
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